Telecom in China

China has one of the world’s fastest growing telecommunications markets and operates the world’s

largest fixed (wire line) and wireless telecommunications networks. There are more than 900 million

telephone connections, with 641,230,016 mobile and 340,809,984 fixed line subscribers in the country.

Spending on telecom equipment totaled around $16.635 million in 2010, while spending on telecom

services was approximately $120.419 million. Rates of new subscriber growth and infrastructure

investment have slowed the past three years, however. The development of telecommunications has

proceeded unevenly throughout the country, with the provinces along the Eastern seaboard containing

nearly one-half of China’s telecom users. China’s western provinces and rural population are still greatly

underserved, and the government is anxious to foster telecom development in those regions.

Telecom Service Operators

The three major telecom service operators in China, all majority government owned, are:

China Mobile was formed out of China Telecom in 2000 and has subsidiary companies in 25 provinces

including Hong Kong. It is the leader of the mobile market. By 1998, it controlled 95 percent of China’s

mobile market, but it now faces stiff competition from Unicom. Today it controls close to 60% of the

market. The two firms have engaged in unofficial price wars flouting MII’s recommended tariffs. C hina

Mobile operates GSM networks, has nearly 500 million subscribers. China Mobile has transferred all its

networks to China Mobile Hong Kong. The company has an alliance with Vodafone. China Mobile

acquired China Railcom’s fixed-line assets.

China Telecom, established in 1958, broken up in 1999, and reformed in 2002, operates 20 wireline

networks in China’s southern and western provinces. With its 90.520 million subscribers, it collects 10.8

percent of China’s telecom service revenues. China Telecom put in place most of China’s core

broadband backbone network. Its wireless local loop (WLL) service has been a commercial success.

China Telecom has a strategic partnership with Deutsche Telekom.

China Unicom, established in 1994, is a consortium of 17 Chinese telecom organizations and operates

two mobile services based on GSM and CDMA standards. It is the second largest mobile operator. China

Unicom is the only full-service provider in China, although it only recently began providing long distance

and international services. It has been unable to mount a serious challenge to China Telecom, although

it is allowed to price its services up to 10 percent lower than the government’s prescribed rates. China

Unicom has a partnership with Hutchison Whampoa of Hong Kong and an alliance with Australia’s

Telstra on CDMA cooperation. China Unicom acquired China Netcom’s fixed-line assets in 2009.

 

Challenges in the Telecom Market

  A saturated market for basic voice and unmanaged data services in major geographies. A

telecom market characterized by undisciplined pricing and promotional tactics and competition

among incumbents. The focus is on gaining market share rather than on increasing total market

size through added value innovation.

  Generally poor availability of value-added services (VAS) due to limited competition and

uncooperative basic network facility providers. This, in turn, reduces incentives for innovation

and improved quality of service and constrains the emergence of world-class operating

capabilities, stymies the development of partner and customer care management capabilities,

and provides little incentive to improve customer service regularly.

  High levels of regulatory uncertainty and perceived regulatory risk over third-generation (3G)

mobile licenses, interconnection rules and charging principles, wireless local loop systems, new

licenses, scope of the service classification catalogue, and so on. These regulatory uncertainties

greatly deflate share prices and constrain investment by incumbents and new entrants alike.